Determine your borrowing power and financial health.
1. Monthly Income (Before Taxes)
2. Monthly Debt Payments
Understanding Your Debt-to-Income (DTI) Ratio
Your Debt-to-Income (DTI) ratio is one of the most critical metrics lenders use to assess your creditworthiness. It represents the percentage of your gross monthly income that goes toward paying your monthly debts. Unlike your credit score, which measures your credit history, your DTI measures your capacity to repay new debt.
Why DTI Matters for Mortgages and Loans
Lenders want to ensure that you aren't overextended. A lower DTI indicates that you have a good balance between debt and income, making you a safer borrower. A high DTI suggests that you might struggle to make payments if you take on an additional loan.
Under 36%: Ideally, most financial advisors recommend keeping your DTI below 36%.
36% – 43%: This is often acceptable for many lenders, but you may face higher interest rates or stricter terms.
Over 43%: This is often the cutoff for "Qualified Mortgages." Borrowers with a DTI above 43% may find it difficult to get approved for a standard mortgage.
How to Calculate DTI
The formula for calculating your Debt-to-Income ratio is relatively simple:
Note: Gross Monthly Income is your income before taxes and deductions. Total Monthly Debt includes minimum payments on credit cards, student loans, auto loans, and housing costs.
Real-World Example
Let's say John earns $6,000 per month before taxes.
His monthly expenses are:
Mortgage: $1,800
Car Payment: $400
Student Loan: $200
Credit Cards: $150
Total Debt: $2,550
Calculation: ($2,550 / $6,000) = 0.425
Result: John's DTI is 42.5%. This is near the limit for many lenders, suggesting John should try to pay down some debt before applying for a new loan.
Front-End vs. Back-End Ratio
The calculator above determines your Back-End Ratio, which includes all debts. Lenders also look at the Front-End Ratio, which only includes housing costs (rent/mortgage, property taxes, and insurance). Ideally, your housing costs alone should not exceed 28% of your gross income.
function calculateDTI() {
// 1. Get Inputs using var as requested
var grossIncome = parseFloat(document.getElementById('grossIncome').value) || 0;
var otherIncome = parseFloat(document.getElementById('otherIncome').value) || 0;
var rentMortgage = parseFloat(document.getElementById('rentMortgage').value) || 0;
var carLoans = parseFloat(document.getElementById('carLoans').value) || 0;
var studentLoans = parseFloat(document.getElementById('studentLoans').value) || 0;
var creditCards = parseFloat(document.getElementById('creditCards').value) || 0;
var otherDebt = parseFloat(document.getElementById('otherDebt').value) || 0;
// 2. Validation
if (grossIncome + otherIncome === 0) {
alert("Please enter a valid monthly income amount to calculate your DTI.");
return;
}
// 3. Logic Calculations
var totalMonthlyIncome = grossIncome + otherIncome;
var totalMonthlyDebt = rentMortgage + carLoans + studentLoans + creditCards + otherDebt;
var dtiRatio = (totalMonthlyDebt / totalMonthlyIncome) * 100;
// 4. Determine Status
var statusColor = "";
var statusText = "";
if (dtiRatio = 36 && dtiRatio <= 43) {
statusColor = "#f39c12"; // Orange
statusText = "Manageable";
} else {
statusColor = "#c0392b"; // Red
statusText = "High Risk";
}
// 5. Construct Result HTML
var resultDiv = document.getElementById('dtiResult');
resultDiv.style.display = "block";
resultDiv.innerHTML =
'